Experts…search for less information than novices do & the use of price in speculation

“Experts,” Gerd Gigerenzer,author of “Risk Savvy: How to Make Good Decisions”, writes, “often search for less information than novices do.”

From the Farnam Street Blog, I saw this post and discussion of heuristics.

In summary, Farnam Street concludes with, “while rational thinking works well for risks, you need a combination of rational and heuristic thinking to make decisions under uncertainty.”

I have moved increasingly towards a focus on price. Mechanical/Technical traders rely upon price interpretation and fundamental investors rely upon price (of valuation). Both employ a consistent basic set of rules in a variety of speculative and investment scenarios over and over, and the best of them avoid anything extraneous to their respective processes.

The founder of Aquamarine Investment, a value investor, assiduously avoids the “noise” of the crowd opinion and emotion, and takes shelter within a private library, focusing on company filings and records, and issues trade orders after market hours have closed. The founder of Winton Funds, a mechanical trading firm, focuses on price, avoiding the “noise” of interpretation and opinions about the merits of any particular investment’s prospects. Both manage the uncertainty of risk in their own ways, and do not trade/invest/move without the “approval” of their respective approaches to investment. Both styles, as epitomized, have reduced their approaches, cutting and cutting away information that is not helpful for their approaches.

For me, I started as a fundamental/”story” investor, but have migrated through macro and arrived at price, with an increasing focus on self-knowledge and risk management. Less and less of what was and more and more of the few select points of data for me.

Can you do the same?


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